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U.S. Energy sees promise in Texas

Jun 19, 2013 - By Katie Roenigk, Staff Writer

Test wells in the Buda Limestone have potential to be "barn burner," leaders of the Riverton-based company believe.

U.S. Energy president Mark Larsen told shareholders in April that the Buda Limestone project in south Texas may be a "near term oil and gas growth catalyst" for the independent exploration and production company based in Riverton.

Results from the company's test wells haven't yet been released, but Reggie Larsen, director of investor relations for U.S. Energy, said wells in the same area have been producing 800-900 barrels of oil per day.

"(There's the) potential to have some barn burner wells ... and these are $4 million to drill," he said, comparing the price to a $10 million well in North Dakota. "These wells could produce about 350,000 barrels in about a 10-year period, but at one-third the cost. (They are) some of the best economic wells we've ever participated in."

The company could drill 20-40 wells at the site, he said, and each one that produces 1,000 net barrels of oil each day brings about $2.5 million per month in income to U.S. Energy.

"If this works the way I think it is ... it's very meaningful," he said. "It's one of the best things to happen to this company in the last decade."

Another well will be tested in July, and if results of both tests are favorable he said U.S. Energy will deploy a full-time rig in south Texas.

Mount Emmons

In October 2012, the company submitted a plan of operations to the U.S. Forest Serve for the Mt. Emmons molybdenum mine in Colorado, and the document was approved in April 2013.

Mark Larsen in his letter described a 12,600 ton-per-day underground mining operation with an estimated 33-year operational life.

"That's a huge project," said Reggie Larsen.

The mine's depth is yet to be determined, Reggie Larsen added, explaining that deeper mines tend to produce more of the common steel additive.

"So it's a home run jump for our company if we're able to develop it, or portray the development of it and spin it off for a large sum of money," he said.

According to its annual report, U.S. Energy has worked since its founding in 1966 to find opportunistic natural resource assets, partner with proven industry operators, develop projects and then monetize the asset ideally at the point when the project has matured and the company can capture upside value for the company and its shareholders.

Mark Larsen wrote that the company's ultimate goal with Mount Emmons is to "monetize the project in due course" in order to focus U.S. Energy's efforts more exclusively on growth in the oil and gas sector.

Reggie Larsen said the transition to oil and gas has been ongoing since 2006, when U.S. Energy sold its uranium holdings to a company in South Africa for $110 million.

"We're working toward becoming a non-operated oil and gas company with interests in North Dakota, Texas, and wherever the hot regional plays in the United States are," he said.

Wilcox

U.S. Energy also recently participated in the drilling of a Wilcox test well in east Texas. Mark Larsen wrote that initial results from that well are encouraging and indicate the presence of multiple stacked Wilcox sands.

"Our acreage is located in Anderson County, Texas, where the Wilcox is reported to have produced over 11 million (barrels of oil equivalent)," he wrote. "If this test confirms a commercial Wilcox discovery, there is a possibility of a multi-well field development."

Reggie Larsen said wells at the east Texas site would produce 10-15 barrels of oil per day.

According to its 2012 annual report, U.S. Energy's objective is to present above-average return-on-investment potential through the ventures it develops. In 2012, the company reportedly divested its non-producing interests in the Williston Basin of North Dakota and Montana for $20.4 million in cash in order to maintain a conservative debt balance and to ensure its ability to continue funding its drilling obligations on an ongoing basis.

U.S. Energy reported achieving a record $32.5 million in oil and gas revenue in 2012, when the company produced 44,702 barrels of oil equivalent from 83 gross net producing wells. U.S. Energy reportedly maintained an average stabilized production of 1,215 barrels of oil equivalent per day in 2012, and at year-end the company's net proved reserves were measured at 2.9 million barrels of oil equivalent.

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